What does a fund manager expect

from listed company?

Win Udomrachtavanich, Ph.D.

9 May 2016

Simple Questions that investment professional

keeps asking

Why should I invest in this company?

Why should I continue to hold this company’s stock?

What should I recommend for this company’s shares? –

Buy / Hold/ sell ??

Basic required information to help answering these basic

questions

Macro/ Sector / Industrial Brief

General Company Brief

Operational and Financial Brief

Overview Investment process of Fund manager

Sample of fund management process

Security Analysis – Top Down approach

Step 1: Economic Analysis

State of overall economy

Step 2: Industry Analysis

Outlook for specific industry

Level of competition in industry

Step 3: Fundamental Analysis

Financial condition of specific company

Historical behavior of specific company’s stock

Security Analysis – Economics analysis

“A study of general economic conditions that is used in the

valuation of common stock.”

Stock prices are heavily influenced by the state of the

economy and by economic events.

Economy Company Profits Stock Prices

C C C

D D D

Security Analysis – Economics analysis

Economic Variable Change Stock Market Effect

Inflation Increase D

Decrease C

Corporate Profits Increase C

Decrease D

Unemployment Increase D

Decrease C

Federal Budget Surplus C

Deficit D

Security Analysis – Industrial Analysis

Evaluate the competitive position of a particular industry in relation

to

other industries

Looking for new opportunities &

growth potential

Identify companies within the industry that look promising

Looking for strong market positions, pricing leadership,

economies of scale, etc.

Security Analysis – Industrial Analysis

What is the nature of the industry?

Is the industry regulated?

What role does labor play in the industry?

How important are technological developments?

Which economic forces have the most impact on the industry (e.g., interest rates, foreign trade)?

What are the important financial and operating considerations (e.g., access to capital)?

Security Analysis – Industrial Analysis

Growth Cycle reflects the vitality of an industry or a company over

time.

Initial development: industry is new and risks are

very high

Rapid expansion: product acceptance is growing and investors

become very interested

Mature growth: expansion comes from growth in the economy and

returns are more predictable

Stability or decline: demand for product is diminishing and

investors avoid this stage

Fundamental Analysis -- Stock Price Valuation process

Prior to making an investment decision, an Equity Analyst

conducts fundamental research on a particular company

This process includes

Corporate Data Gathering

Building Models and Analyzing Data

Determining the Business Outlook and Value

Developing a Recommendation

Data Gathering

The first step in fundamental analysis is data gathering.

Data sources include:

Company specific publications

SEC Filings / SET filings

Company press releases

Company website

Media

Industry specific publications (General Media)

E-finance

Bloomberg

APEX

Data Gathering

Additional Data Sources include:

Quarterly Analyst Calls

Company Presentations

1 on 1 visit with management

Conference Calls

Company officers, competitors, industry experts, suppliers, customers, etc.

Financial Databases

FactSet

Bloomberg

Reuters

Building Models

Equity Research Analysts build economic, industry, and company models that will project a company’s stock price.

These models include:

Model Inputs –

Impacts of Product Releases

Seasonality and Trends

Growth and Profitability

Dollar and Marginal

Foreseen events (e.g. spin-offs, acquisitions, etc.)

ESG ???

Model Outputs

Financial Projections (including dividend projections)

Ratio Analysis

Building Models

The models will reflect the economic, industry, and company information gathered through the various sources identified earlier

The models will be updated periodically or when new, significant information is released to the public

Better Data gathering leads to more accuracy of the model – of which eventually led to better analyzing process and determine true value of the firm

Analysis

Now the Equity Analyst is ready to analyze the data

Economic Forecast and Analysis

PCI and Economic Growth Models

Industry Analysis

Trends in Investment Cycles

Trends in Technology Advancement

Competitiveness of the Industry

Company Forecast and Analysis

Financial Projections

Peer Comparison

Management Analysis

Determining the Business Outlook and Value

The business outlook is based on factors related to the current and expected strength of the economy, industry, and company.

The value of the company can be determined by a number of valuation methods:

Discounted Cash Flows

Dividend Discount Model

Asset Valuation

Relative Valuation

Buy / Sell Recommendations

Based on the investment style, objectives, and research conclusions, the Equity Research Analyst provides an intrinsic value of the firm (iNAV)and investment recommendation:

Buy, Sell, or Hold

Investment Style Matters

Value Investor

A value investor looks to invest in a security that is trading at a discount to its fair value and looks to sell when it is trading above that value

Growth Investor

A growth investor looks to invest in companies with above average prospects for growth in the future

Risks Associated with Fund management

What does a fund manager expect from

corporate IR?

1 Be consistent in describing the company, its goals, objectives,

achievements and nancials.

2 Communicate in a timely manner to all stakeholders in both good and bad

times.

3 Compare achievements with promises. Do not shy away from

communicating both good and bad news. This helps build confidence and

manages expectations.

Effective IR Strategy is important – Building

one by tackling the following questions

How well the company’s strategies and operations are being recognized and

accepted.

Extent to which investors, brokers and analysts have absorbed the investor

information supplied by the company.

Investment community attitudes towards the company.

Investors’ evaluation of the company’s management and its communication

program.

Actions that trigger a stock purchase or sale.

Well planning and effective strategy help increase IR efficiency and

uncovered true corporate value!!!!

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Q&A